As things stand now, cannabis firm Cronos Group (NASDAQ:CRON) is a two-faced investment. CRON stock recovered well from late last year’s volatility, as CRON stock is up nearly 49% since the beginning of January. But Cronos stock shed 30% since March 1, putting a sour taste in recent buyers’ mouths.
Fundamentally, Cronos has the same split personality. Last week, the company reported its first-quarter results. On paper, Cronos delivered a strong beat. Analysts’ consensus estimate pegged earnings per share at a loss of two cents. Instead, EPS came in at 36 cents on the positive end of the scale.
Moreover, Cronos rang up 6.47 million CAD, or $4.8 million, of net sales. That was a massive 120% increase from the year-ago quarter. But as The Motley Fool’s Sean Williams noted, the cannabis firm benefited from multiple one-off events. All things considered Cronos Group loses money on its operations.
InvestorPlace Managing Editor John Kilhefner has also joined in on the fun. Kilhefner bought CRON stock because, in his words, he was “greedy.” He wanted a “quick short-term boost” and what better place to get that than with marijuana?
However, Kilhefner now regrets buying Cronos stock. For one thing, after clearing his thoughts, he doesn’t view marijuana as an investment but rather, pure speculation. More critically, the reality of cannabis hasn’t come anywhere close to the hype. For instance, Canadian cannabis stores are selling fewer botanical products than previously anticipated.
With that negative backdrop, it’s no wonder why investors are have mixed views on CRON stock. Still, I think Kilhefner and others may want to consider another massive catalyst: China.
CRON Stock Has Received a Massive Tailwind
One of the more surprising developments in geopolitics recently is that the trade war is back on. For weeks, it appeared that the Trump administration and its Chinese counterpart were ready to make a deal.
But the deal appears to have fallen through. This latest freeze in U.S.-China relations may not thaw for quite some time. As InvestorPlace’s William Roth explained, our military exercises in the South China Sea appeared to have been carefully orchestrated.
What does that have to do with CRON stock? Everything. Trump has pushed himself into a corner economically. The initial round of tariffs already hurt many businesses across multiple sectors. With the President threatening even harsher penalties, astute market observers are bracing themselves for a rough landing.
Of course, one sector that has absorbed substantial damage is agriculture. Already weakened from demographic challenges, American farmers have been put in a vice grip by tariffs. Since much of this country’s agricultural base is located in conservative regions, Trump can’t play hardball with the Chinese without incurring political penalties.
That is where CRON stock and other major marijuana names like Canopy Growth (NYSE:CGC) and Aurora Cannabis (NYSE:ACB) come into the picture. If this “trade war 2.0” worsens – again, Roth forwarded evidence that it will – full recreational legalization is on the table.
Despite growing political momentum, getting rid of the federal government’s Schedule I classification appeared to be a pipe dream. Even during the Obama administration, marijuana tip-toed a delicate balance between states’ rights and federal oversight.
But right now, there’s a good chance that our economy will enter a recession. Trump will either have to give in to the Chinese or make concessions on the cannabis legalization front. I’d say that’s a long-term benefit to CRON stock.
Don’t Give Up on Cronos Stock!
If Kilhefner hasn’t dumped his shares of Cronos Group stock, I’d recommend he bite the bullet and wait. Politically, what’s currently happening is the best thing ever for the marijuana industry.
If I know anything about the Chinese, they hate losing face. If I know anything about Trump, he hates losing, period. Both Trump and his counterpart, President Xi, are egomaniacs who are unwilling to concede an inch to each other.
In this situation, China must rely more on its allies, Russia and North Korea. We, on the other hand, are in a great position: we don’t need dictators and despots to prop up our economy. Instead, we just need to convince roughly half our citizens that they won’t be condemned to eternal damnation for their botanical indulgences.
While religion has been historically very strong in this country, that goes away in a recession. The easy fix is legalization, or at least a much more tolerant (and transparent) policy.
I agree with Kilhefner that CRON stock is a gamble. However, I disagree with his conclusion. Now is the best time to consider making that bet.
As of this writing, Josh Enomoto did not hold a position in any of the aforementioned securities.
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